Holidays to Put Amazon Strategy to the Test

E-tailer has branched out from books into myriad product lines. But will consumers look to site for toy and tool purchases?

Barely five years ago, Jeff Bezos hooked up a few computers in the garage of his suburban Seattle home and flipped the switch on his dream to launch "Earth's biggest bookstore" by harnessing this newfangled e-commerce thing everyone was talking about.

An initial public offering later, Bezos was a 34-year-old billionaire, joining the pantheon of brilliant nerd heroes who are rewriting the rules on everything in business.

Now comes the hard part.

Bezos could have called his venture Bookshop.com or Buybooks.com, but it was no accident that he found inspiration in a river that is said to have an endless number of branches. Bezos believes that through an extraordinary advertising blitz he has made Amazon.com synonymous with e-commerce and that he can sell anything online, from microwave ovens to garden rakes.

As the important Christmas shopping season begins, the pursuit of that vision will test the limits of this relatively new commercial frontier.

It also will test the limits of the Amazon brand and provide clues to a multibillion-dollar question: Can Amazon.com--can any Internet site--overcome a long list of marketing and logistical hurdles and succeed in becoming the Wal-Mart of the Web?

"The short answer, I think, is no," said Andy Bartels, vice president of e-commerce at Giga Information Group, a Cambridge, Mass., consulting firm.

Amazon's hard-built franchise in online bookselling might not translate well to other categories, particularly products that shoppers like to touch before they buy, Bartels and some other analysts say. They question whether online shoppers who trust Amazon for books will have the same level of confidence when it comes to buying a belt sander or a gas grill.

"The whole valuation of Amazon has been based upon this open-ended vision that Bezos created, that it will become the Wal-Mart of the Internet," Bartels said. "It has learned, painfully, that it can't."

Not everyone agrees with that gloomy assessment, and Amazon retains some strong allies in the financial world. Tom H. Wyman, a vice president at J.P. Morgan Securities in San Francisco, said Amazon is seeing rapid growth in most of its new categories and he thinks the company is on a steady path to profitability.

Wyman predicted that as online shopping continues to grow, even the best of the competition--such as Wal-Mart.com, Kmart's BlueLight.com and Buy.com--will all come up short against Amazon.

"In the end," Wyman said, "they dominate."

That confidence pushed Amazon's stock to $113 a share last December. But in a steady sell-off through most of the year, Amazon lost as much as 80% of that value--a result of investors' growing doubts about Amazon's mega-mall aspirations.

The wake-up on Wall Street began after a disappointing 1999 Christmas season that left Amazon with tens of millions of dollars in unsold inventory. Amazon's picks didn't match the demand, and a growing number of investors began to question the foundation of Bezos' sell-everything philosophy.

Amazon offers 18 million items for sale. It is a statistic Bezos loves and one that petrifies some analysts, who wonder how any online company can select, stock and ship 18 million different items and maintain the lean infrastructure that is supposed to give virtual stores the edge.

This Christmas, Amazon is trying a new tack, teaming up with Toys R Us to share the strength of each other's brands. Amazon will handle the ordering and the shipping, Toys R Us will take care of inventory.

The partnership has been widely hailed, although some analysts see Amazon's growing use of retail partners as an acknowledgment by Bezos that he can't conquer the e-tail world on his own.

Amazon pursued the Toys R Us deal because it was a win-win proposition, Bezos said, not because Amazon couldn't have kept the toyshop open on its own. And he brushes off bricks-and-mortar comparisons, saying he isn't interested in building an Internet version of Wal-Mart or Mall of America.

"We want to be the Amazon.com of the Internet," he said.

Bezos, a Princeton-educated computer scientist, was a restless investment banker who ditched Wall Street on a hunch that there was big money to be made getting in on the ground floor of online shopping. He compiled a list of potential merchandise categories and crossed them off one by one until he settled on books.

It might have seemed an unlikely choice; bookstores, after all, were among the better retailers at delivering an inviting shopping experience.